Demand-driven Agriculture Development

byKees van der Meer

World Bank

WB-CEI-FAO Workshop on

Agriculture, Agribusiness and the Retail Sector in South-East EuropeSarajevo, 24-27 May, 2004

Contents

• Traditional supply-driven agriculture• Changes in consumer demand• Changes in technology• Changes in trade and foreign investment policies• Changes in food distribution • Changes in food processing• Changes in food safety requirements• Changes in competition• The challenge of changing demand

Traditional supply-driven agriculture

Supply driven by supply factors• Natural conditions• Technology and productivity• Producers aim at more volume

Impacts• Often mismatch between supply and demand in

quantities and qualities, especially for perishable products

• Strong price competition

Changes in consumer demand

Increased income Urbanization, modern life style Diverse and aging populations Rising demands for fish, fruits, vegetables,

some animal products, processed foods Rising demand for easy-to-consume,

variety, quality, freshness, appearance, safety, packing

Changes in technology

Information technology and logistics Development of new varieties Food processing and handling

technologies Scientific understanding of food safety Detection methods

Changes in trade and foreign investment policies

• Liberalization of trade and foreign investment

• Bigger markets, more opportunities, more competition

• More vulnerable to shocks in exchange rates and product markets

• New players in retail and processing

Changes in food distribution

Ascendancy of the supermarkets Rapid expansion in food service for out-of

home consumption Increased importance of branded products Retail paradox: consolidation, yet more

competition between different formats Fewer ‘gatekeepers’ handling products

Changes in food processing

• Competition between retailers and branded products

• Competitive challenges and changes in demand

• Continuous need for product innovation• Subsequent needs to adjust supply of raw

material• Need for steady supply of high quality raw

material

Changes in food safety requirements: food scares

Mad cows (34 countries) Bad berries Salmonella scares; e.coli outbreaks Hormone/antibiotic concerns Dioxin in animal feed Pesticides in children’s food Avian flu

Changes in food safety requirements: unfolding responses

Unfolding public responses to food scares restructuring regulatory authorities; revision of laws tightening standards and procedural requirements Increased requirements for importing countries

Unfolding private responses to food scares Food safety dealt with as a commercial risk Shift from open to coordinated and closed supply chains Preferred suppliers with guarantees of safety and quality Protocols for suppliers with requirements for HACPP,

GMP/GAP, ISO 9000

Changes in competition

Traditional facors still important:• Cost of production• Physical productivityNew factors of increasing importance• Quality (appearance, consistency)• Quantity• Safety• Scheduled delivery of product with many

specifications

The challenge of changing demand (1)

Risk

• To compete at low prices in low quality and shrinking market segments

Opportunity

• To supply higher value added products

• To supply to more attactive market segments

The challenge of changing demand (2)

Requirements often include• Some form of coordination between producers and

buyers with regard to:Quality specifications, delivery schedulesFood safety guaranteesFlexibility in supply with regard to demand

• Cooperating with other small producers for scaling-up quantities of consistent, high quality product

• Upgrading technology • Investment in production and handling

Conclusions

• Demand in food markets is rapidly changing• This poses major risks for losing income and

markets• It also poses opportunities for growth and value

added• Turning challenges into opportunities by:

Establishing coordinated supply chainsCooperating with other small producers Upgrading technology and facilities